1. Make sure you know whether or not, Value Added Tax (VAT) applies to your real estate transactions. This is important because knowing your exemptions can actually save you money on taxes. Before going into detail about how you can save on tax, let's review what VAT is?
As a general rule, 12% VAT is imposed on sale of goods and services. This rate is based on the Gross Selling Price or Gross Value in Money of anything you sell, barter or exchange. If you're the seller or transferor or landlord, you are required to pay this tax. But there are exemptions to this rule. And in this way you can get to save money on tax.
If you lease out your unit at Php 10,000 a month and below, you're not required to pay VAT. For example, if you have a four-door apartment building, and you lease out each unit at Php 8,000 a month, your annual gross income) is below Php 400,000, then you won't be subjected to VAT.
On the other hand, if you're the seller, you won't have to pay for VAT if:
- You sell your house and lot for Php 3.199 million and below
- You sell your lot for Php 1.91 million and below.
For example in Parañaque, you just have to pay before December 15 to avail on the 20% real property tax discount. In Marikina and Antipolo City, they also give discounts if you pay next year's taxes in full which is on or before December 31.
Check your local or municipal office to find out how to avail real property tax discounts.
3. Take advantage of the Capital Gains Tax Exemption. However, to be exempted, you have to do a lot of paperworks. It would be smart to check first if the efforts is worth it.
Capital Gains Tax is usually computed at 6% of the highest among the BIR zonal value, tax declaration value, or gross selling price. So savings could be pretty significant for multi-million properties.
How to qualify?
To qualify for exemption, you have to declare the property you're selling as your principal residence. This means that the residential address written on your latest income tax return should be the property you're trying to sell, so it can be treated as your true residential address.
But it doesn't end there. You also have to fit these criteria:
- The proceeds from the sale should be used in acquisition or construction of the new home within 18 calendar months.
- The historical cost or adjusted basis of the real property sold or disposed will be carried over to the new principal residence built or acquired.
- You must notify the Commissioner within 30 days from the date of sale or disposition.
- Remember, this may only be availed once every 10 years.
- And lastly, you have to fill out the Certificate Authorizing Registration (CAR) and Tax Clearance from the BIR before anything else.
LIST OF DOCUMENTARY REQUIREMENTS ON SALE OF REAL PROPERTY FOR TAX EXEMPT SALE OF PRINCIPAL RESIDENCE
A. Mandatory Requirements (Taxable/Exempt)
- Tax Identification Number (TIN) of Seller and Buyer
- Notarized Deed of Absolute Sale/Document of Transfer, but only photocopied document shall be retained by the Bureau of Internal Revenue (BIR)
- Certified true copy of latest Tax Declaration issued by the Local Assessor's Office for land and improvement relevant to the date of transaction
- Owner's copy for presentation purposes only together with photocopy thereof for authentication or Certified True Copy of Transfer Certificate of Title (TCT), Condominium Certificate of Title (CCT), Original Certificate of Title (OCT)
- Official Receipt/Deposit Slip and duly validated return as proof of payment
- Within thirty (30) days from the date of sale, exchange or disposition of principal residence:
- Duly Sworn Letter of Intent
- Escrow Agreement duly signed by Revenue District Officer, Bank Representative and Taxpayer
- Within thirty (30) days from the lapse of the 18-month period taxpayer shall submit to RDO concerned the following documents:
- Sworn statements as to the amount utilized at the end of the eighteen (18) month period in acquiring a new residence whether by purchase or construction.
- Original copy of the Deed of Absolute Sale covering the purchase of his new residence if required by purchase
- If new residence is acquired through construction, present the following:
- Certified statement from his architect or engineer or both showing the cost of materials and labor utilized at the end of the 18-month period
- Building Permit issued by the Office of the Building Official of the City or Municipality where his new residence shall be constructed
- Such other requirements as may be required by law/rulings/regulations/other issuances.
Unfortunately, taxes in real estate are inevitable and you can't always enjoy exemptions especially for large-scale transactions. However, it would still be advantageous what your options are.
So before you sell or dispose any property, make sure to consult a reliable real estate broker who can help you navigate through the complex bureaucracy and processes.